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Microsoft sticks to mid-market message despite Navision acquisition

The minute Microsoft announced its plans to acquire European software firm Navision, industry insiders speculated the Redmond giant would broaden its CRM focus. Yet Microsoft vows it's sticking to its original game plan.

Building on a strategy it has gradually unveiled over the last six months, Microsoft Corp. pushed further into the CRM market Tuesday, announcing it will acquire Danish business applications vendor Navision for a reported $1.3 billion. Yet Microsoft vows the acquisition will merely solidify its mid-market CRM strategy rather than broaden it to include the enterprise.

The Redmond, Wash.-based software giant is targeting small and mid-sized businesses with its own CRM offering -- the first package built on its .NET platform -- due out in Q4 2002. Microsoft had previously indicated it would grow its presence in the arena through strategic buyouts of companies already working in the space, such as Navision.

Microsoft presently markets a set of basic applications through a software division formed after acquiring Great Plains last year.

Microsoft officials said the latest deal would expand upon its highly publicized mid-market CRM strategy and indicated that once the pending merger clears regulatory review, Navision, based in Vedbaek, Denmark, would become part of Microsoft's Business Solutions division.

Despite widespread speculation that the company's mid-market focus is merely a thinly-veiled first step toward entering the enterprise applications sector, Microsoft continues to deny it has any plans to move upstream to compete with CRM vendors such as Siebel Systems Inc. or PeopleSoft Inc. Microsoft general manager of global CRM David Thacher said the deal does not represent any strategic shift or even an attempt to compete in the enterprise resource planning (ERP) market with European heavyweights such as SAP AG.

"We know we're going to continue to hear that question but we also know that our greatest opportunity is the mid-market, which is totally fragmented if you look at what is out there today," Thacher said.

He estimates that only 12% of mid-sized companies, firms with revenues less than $800 million, are already working with any form of CRM.

"That's what drove us to think about this market as an opportunity," he said. "Ultimately it is why we acquired Great Plains and this is the natural second step."

Thacher said the Navision buyout was primarily driven by Microsoft's desire to move its CRM strategy out on a more global level. Navision says that 80% of its business is located outside of Denmark.

While it is likely that many industry watchers will speculate about move to the enterprise for the ever-voracious Microsoft, some are beginning to think it may actually stick to the middle market.

"It's a smart move because there is a huge opportunity for CRM within these mid-tier companies," said Kelly Spang, senior analyst at researcher Current Analysis, Sterling, Va. "Why go compete with Siebel and PeopleSoft in the enterprise space when there is tremendous opportunity with organizations that have no real experience with CRM."

Spang said she believes the move should give Microsoft the increased international presence it is seeking. Navision has experience with many of the different corporate cultures and business processes in Europe.

Spang does, however, think the acquisition gives Microsoft some added European ERP traction.

"I wouldn't be surprised if it does put Microsoft in closer competition with SAP in Europe," the analyst said. "The reason for this is that Navision is known to work successfully in the core of SAP markets -- manufacturing and supply chain."

Microsoft reported that Navision's executive team would stay on board after the acquisition is complete, including the company's five founders, who also represent 56% of the firm's shareholders. The company said all 1,300 of Navision's employees would become Microsoft staffers and that it plans to leave the bulk of the company in its Copenhagen digs, which will become Microsoft's largest applications development center outside of the United States. Navision is projecting revenues of $210 million for 2002.

Company officals said they do not expect antitrust problems as the deal falls below the threshold of current European Union merger regulations. The acquisition will be completed using a mix of Navision shares and cash, the companies said.


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